High hopes that NewBuy will fuel market recovery

Is the Government-sponsored scheme the answer to would-be buyers struggling to find affordable mortgage deposits? Chiara Cavaglieri and Julian Knight report

Many in the property industry will be shouting "good news all around" when the Government unveils its NewBuy Guarantee scheme later this month. But should aspiring homeowners really be welcoming this latest scheme with open arms?

Housing minister Grant Shapps has said that NewBuy will offer 100,000 homebuyers the chance to buy a new-build property with only a 5 per cent deposit. The typical deposit needed to buy a home is 20 per cent; so for a home worth £200,000 buyers under this scheme need a deposit of £10,000 rather than £40,000.

"All the major lenders have signed up," says Steve Turner from the Home Builders Federation, which together with the Council of Mortgage Lenders (CML) has been developing the scheme. "The biggest constraint on sales and construction is the fact that people can't get mortgages. Very few people can afford a 20 or 25 per cent deposit but this will reduce deposits to a realistic, achievable level."

NewBuy is due to be launched later this month but the Government, lenders and housebuilders are still working behind the scenes to iron out the finer details. There are some positive signs, not least of which is that unlike other initiatives that have been rolled out in the past, this is open to existing homeowners as well as first-time buyers (FTBs) on properties worth up to £500,000.

"The housebuilders are behind this and I anticpate to see Nationwide, Lloyds and Santander move in from the likely start date of 12 March," says Nigel Stockton, a financial services director at Countrywide.

Lenders are being offered the security of protection against losses caused by further dips in the housing market. Developers will do their bit by putting up 3.5 per cent of a property's value as deposit with the lenders, and the Government will top up the guarantee with another 5.5 per cent.

"Lenders can lend with more comfort and without incurring risk and capital issues. Lenders typically have lower loan to values (LTVs) on new-builds than existing buildings so what this does is level the playing field a bit," says Sue Anderson from the CML.

What this scheme does not do, however, is make any guarantees as to the supply of mortgage finance, or how competitively priced these mortgages are likely to be. And the initiative is arriving at a tricky time in the market with major lenders such as Halifax and Royal Bank of Scotland increasing rates on a range of home loans last week because the cost of raising the funds on the money markets has risen.

As well as first-time buyers, many existing homeowners are struggling to move into a new home because house prices have dropped and left them with little equity to put towards a new purchase. As things stand, if you haven't built up a large deposit, mortgages carry a considerable premium. For example, Newcastle building society offers a two-year fixed rate at 5.95 per cent up to 95 per cent LTV with a £995 fee, but if you can afford to take a mortgage at 75 per cent, Yorkshire BS has a two-year fixed rate at 2.79 per cent, a saving of over 2 per cent.

If you're not looking to buy a second-hand property, lenders are always going to be more cautious. New-builds make lenders nervous because they are more vulnerable to house price fluctuations and the build quality can vary widely.

"A new-build is harder to value than an existing property and it has a premium attracted to it which doesn't necessarily extend when you resell – it's a bit like driving a car off the forecourt – which tends to mean that even in a buoyant market, lenders are more careful," says Ms Anderson.

In fact, according to Mr Stockton, some lenders won't give mortgages on new build homes: "Apartments are particularly problematic. Nationwide, for instance, used to value new-build the same as second-hand property – normally lower value – therefore below the asking price. However, things are improving and this should continue as NewBuy rolls out."

Lenders are also going to be just as fussy when it comes to applicants, particularly with first-time buyers, so only those with squeaky-clean credit records are going to get the go ahead and there is nothing to suggest that lenders will be in a position to offer cheaper loans under the NewBuy scheme.

In the wake of the financial crisis, lenders were quick to snatch all of their 95 per cent mortgages off the shelves. There may have been several new launches at high LTV already this year with Leeds, Newcastle and Ipswich building societies all releasing 95 per cent loans, but the problem remains that there is still little choice.

"NewBuy should help to improve this, but at this stage it is impossible to quantify what impact the indemnity scheme will have until we start to see products come to market," says David Hollingworth from mortgage broker London & Country.

The latest figures from the British Bankers' Association show a 33 per cent rise in mortgages being approved (increasing from 28,539 in January 2011 to 38,092 this January). But, this is largely due to the stamp duty holiday for first-time buyers which ends in March and overall, there is still something of a mortgage drought when you compare this to the highs of 130,000 loan approvals in November 2006.

If you don't want to wait for NewBuy, some housebuilders have their own high-equity schemes. For example, Linden Homes offers "Step Up" which enables new homeowners to access a 95 per cent LTV loan at a fairly competitive rate of 4.99 per cent, fixed until April 2015. This allowed Daniel Jones, 28, an account manager, to buy a three-bed townhouse in Haywards Heath, West Sussex. After renting a two-bed, Daniel and his partner Nick (and their two dogs) decided they needed more space.

They had been saving for some time but found lenders hesitant and mortgages pricey. After seeing the 95 per cent Linden deal, they were able to put down a deposit of £12,500 for their home, priced just shy of £250,000 and moved in before Christmas.

"We still had to borrow a little from parents, but the majority of it was ours. In the second-hand market you needed at least 85 per cent LTV before you get a decent rate," says Daniel. "We lived in a tiny house before, this place is double the size and we're only paying £100 or so more a month than when we were renting."

Expert view: David Hollingworth, London & Country

"The success of NewBuy will only really be known once we see how lenders respond. There has been gradual improvement in the deals available at higher LTV but they are still thin on the ground and rates remain high."

PROMOTED VIDEO
Arts and Entertainment
A still from the Jurassic World trailer
film

Video: The official full-length trailer for the Jurassic Park sequel has dropped – two days early

Environment
The plant ‘Nepenthes zygon’ was donated to Kew in 2004
environmentNepenthes zygon had been growing for almost a decade and helping to keep down cockroaches
News
This artist impression shows a modern-day Atlantis
news
Arts and Entertainment
booksPhotographer snapped celebrities for 40 years - but it wasn’t all fun and games
News
i100
Sport
Aguero - who single-handedly has kept City's Champions League dreams alive - celebrates his dramatic late winner
footballManchester City 3 Bayern Munich 2: Argentine's late hat-rick sees home side snatch vital victory
News
peopleSinger tells The Independent what life is like in rehab in an exclusive video interview
News
Muhammad Ali pictured in better health in 2006
peopleBut he has enjoyed publicity from his alleged near-death experience
Arts and Entertainment
Tony breaks into Ian Garrett's yacht and makes a shocking discovery
TVReview: Revelations continue to make this drama a tough watch
News
news
News
The assumption that women are not as competent in leadership positions as men are leads to increased stress in the workplace
science... and it's down to gender stereotypes
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Citifocus Ltd: Product Development - Asset Management

    £Attractive: Citifocus Ltd: High calibre individual with significant product d...

    Citifocus Ltd: Credit Ratings - Banking Sector

    £Negotiable: Citifocus Ltd: Leading global bank seeks experienced credit analy...

    Citifocus Ltd: Economic Crime Investigation & Analysis

    £Attractive Package: Citifocus Ltd: High calibre individual with a high degree...

    Citifocus Ltd: Snr Risk Analyst - Capital & Liquidity

    £Attractive: Citifocus Ltd: High calibre individual with superior academics an...

    Day In a Page

    Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

    Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

    Our partner charities help veterans on the brink – and get them back on their feet
    Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

    Putin’s far-right ambition

    Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
    Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

    Escape to Moominland

    What was the inspiration for Finland's most famous family?
    Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

    24-Hour party person

    Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
    Michelle Obama's school dinners: America’s children have a message for the First Lady

    A taste for rebellion

    US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
    Colouring books for adults: How the French are going crazy for Crayolas

    Colouring books for adults

    How the French are going crazy for Crayolas
    Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

    What would you do as a local politician faced with an impossible choice of cuts?

    Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
    Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

    Call me Ed Mozart

    Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
    10 best stocking fillers for foodies

    Festive treats: 10 best stocking fillers for foodies

    From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
    Phil Hughes head injury: He had one weakness – it has come back to haunt him

    Phil Hughes had one weakness – it has come back to haunt him

    Prolific opener had world at his feet until Harmison and Flintoff bounced him
    'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

    'I am a paedophile'

    Is our approach to sex offenders helping to create more victims?
    How bad do you have to be to lose a Home Office contract?

    How bad do you have to be to lose a Home Office contract?

    Serco given Yarl’s Wood immigration contract despite ‘vast failings’
    Green Party on the march in Bristol: From a lost deposit to victory

    From a lost deposit to victory

    Green Party on the march in Bristol
    Putting the grot right into Santa's grotto

    Winter blunderlands

    Putting the grot into grotto
    'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

    'It just came to us, why not do it naked?'

    London's first nude free runner captured in breathtaking images across capital